Summary

Where a defendant construction company had, in a joint venture, built flats whose misdescription had been substantial, the claimant purchasers had been entitled to rescind or to complete and seek an abatement, so the defendant had not been entitled to require completion and was in repudiatory breach of contract. Subject to the reserved issue of whether they had the relevant knowledge, the Part 20 defendant joint venture partners had been seriously in breach of contractual and fiduciary duty in procuring the purchasers to breach their contracts by offering them an alternative to completion instead of seeking to agree necessary abatements and completing the sales.

Facts

The claimant flat purchasers (C) claimed reimbursement of deposits and damages for breach of contract from the defendant construction company (W), who brought a Part 20 counterclaim against the Part 20 defendants (B) with whom W had entered into a joint venture agreement.

B had traded through other companies that included the second Part 20 claimant (H) and it had been unclear precisely who was the joint venture partner with W. The joint venture was to develop 18 flats built to a high specification, with "limestone flooring throughout" and balconies, and all were sold off plan under the same form of contract, having been promoted with a brochure at a special sales night. The contract of sale expressly referred to the specification contained in the brochure. One of B acted as sales agent and all the flats were sold to personal contacts. On their completion, the flats had different flooring, and three had no balcony. In addition, the car park had been reconfigured. B proposed to C an alternative to completion of the contracts whereby, at no fee, their flats could be assigned. In the event, they were not. C rejected W's completion notices on grounds that included the above failures to meet specifications. H offered to fund legal action to prevent W enforcing completion and to guarantee return of C's deposits. It was common ground that the contracts were rescinded by W or terminated by C. Under the main claim, the main issues for consideration were whether the specification for the flats had been substantially met by W, and whether W had, according to contract, and in some instances with the agreement of B, made only reasonable modifications and substituted materials as near as possible of the same quality and value without lessening the value of the property or materially altering its size and accommodation. If not, the issues were whether C were entitled to refuse to complete their purchases because of substantial misdescriptions, or whether W had had no right to serve a notice to complete before an abatement in price had been determined. Under the Part 20 claims, the main issues were who, precisely, were the joint venture partners, whether two members of B, in procuring C to breach their contracts with W by offering an alternative to completion, had acted in breach of fiduciary duties that continued until all sales of the flats were completed, and whether they were thereby in repudiatory breach of the joint venture agreement and were not entitled to payment of sums under it, despite any breaches of contract by W.

Held

(1) In regard to the main claim (a) on the facts, the failure to install the limestone flooring and the reconfiguration of the car park were departures from the contractual specifications. The balconies were important to a purchaser and affected the value of the three flats and W was not entitled to omit them. The evidence showed that W had used every endeavour to adhere to specification in the case of the limestone flooring, but that there had been no satisfactory way of overcoming the technical problems. However, the substitute flooring was not as near as possible of the same quality and value and had lessened the value of the flats; (b) the misdescriptions were substantial, Flight v Booth 131 E.R. 1160 applied. C had had a choice whether to rescind, or to complete and seek an abatement, and had taken the former option, which they were entitled to do. Accordingly, W had not been entitled to require completion and was in repudiatory breach of contract with C, which had been accepted, and C were entitled to return of their deposits. The issue of damages would be reserved. (2) In respect to the Part 20 claims (a) on the evidence, two individual members of B acting on a personal basis were the parties to the joint venture agreement and they owed a contractual and fiduciary duty to W not knowingly to act in a way contrary to the interests of the venture while it lasted, Bristol & West Building Society v Mothew (t/a Stapley & Co) [1998] Ch. 1 applied. Subject to the reserved issue of whether they knew that in the given circumstances it was contrary to the interests of the joint venture to support C in the way they had done, there was a clear breach of contractual and fiduciary duty. Those members of B should have sought to agree necessary abatements and to complete the sales. They had allowed concern for their business reputations to take priority; (b) in the instant case, and subject to the same reserved issue, the breaches of contractual and fiduciary duty were some of the most serious possible breaches of that term and went to the root of the obligations imposed on the joint venture partner in terms of trust and confidence. A clearer case of repudiatory breach could not be shown, and as W had excluded B from the site from just after completion, there was sufficient acceptance by conduct to terminate the joint venture agreement. Accordingly, B was not entitled to payment of the sums it claimed under the agreement. (3) (Obiter) Where there was a misdescription that reduced the selling price, the claim for an abatement would affect the ability of the seller to be ready and willing to complete and would impeach the notice to complete, Johns v Deacon considered.

Judgment accordingly